Question 2: An elastic demand indicates that A. quantity demanded does not vary

Question

Question 2:

An elastic demand indicates that

A.

quantity demanded does not vary with changes in the price.

B.

relatively small changes in price are required to obtain a relatively large change in quantity demanded.

C.

relatively large changes in price are required to obtain a relatively small change in quantity demanded.

D.

relatively large changes in quantity demanded lead to relatively large changes in price.

Refer to the table at right. Suppose the price of A increases from $10 to $12. What is the cross price elasticity of demand between A and B? PB Q OA.1.833 O B. +0.545 O C. +1.833 O D. +0.579 $10 100 $20 50 $25 200 60 25 225 9025 275 15 100 25 290 320 90 70 50 25 12 15 15 120 25

Explanation / Answer

Answer
Cross price Elasticity of demand=(change in quantity/average quantity)/(change in price/average price)
Change in quantity=100-90=10
average quantity=(100+90)/2=95
change in price=12-10=2
average price=(12+10)/2=11
Elasticity of demand=(10/95)/(2/11)=0.578947368
The cross price elasticity of demand is 0.579
option D

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